At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Companhia Energética de Minas Gerais (NYSE:CIG).
Is CIG a good stock to buy now? Hedge fund interest in Companhia Energética de Minas Gerais (NYSE:CIG) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that CIG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Kohl’s Corporation (NYSE:KSS), John Bean Technologies Corporation (NYSE:JBT), and Community Bank System, Inc. (NYSE:CBU) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
With all of this in mind let’s take a peek at the new hedge fund action regarding Companhia Energética de Minas Gerais (NYSE:CIG).
Do Hedge Funds Think CIG Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in CIG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Companhia Energética de Minas Gerais (NYSE:CIG) was held by AQR Capital Management, which reported holding $4.8 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $1.6 million position. Other investors bullish on the company included Two Sigma Advisors, Millennium Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Schonfeld Strategic Advisors allocated the biggest weight to Companhia Energética de Minas Gerais (NYSE:CIG), around 0.03% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to CIG.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Centiva Capital).
Let’s now take a look at hedge fund activity in other stocks similar to Companhia Energética de Minas Gerais (NYSE:CIG). These stocks are Kohl’s Corporation (NYSE:KSS), John Bean Technologies Corporation (NYSE:JBT), Community Bank System, Inc. (NYSE:CBU), LGI Homes Inc (NASDAQ:LGIH), GW Pharmaceuticals plc (NASDAQ:GWPH), Crane Co. (NYSE:CR), and Atlantica Sustainable Infrastructure plc (NASDAQ:AY). This group of stocks’ market valuations resemble CIG’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $168 million. That figure was $10 million in CIG’s case. Kohl’s Corporation (NYSE:KSS) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Companhia Energética de Minas Gerais (NYSE:CIG) is even less popular than CBU. Our overall hedge fund sentiment score for CIG is 24.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on CIG as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on CIG as the stock returned 41% since Q3 (through December 8th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.